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181115 what are exchanges final (1)


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What are exchanges?

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181115 what are exchanges final (1)

  2. 2. What are Exchanges?1
  3. 3. Key Facts: Exchanges 3 What are Exchanges? Market venues where investors can buy or sell different financial instruments at prices they can trust and which they know in advance. Investors buy and sell financial instruments for several reasons: return on investment, diversification, protection against market fluctuations, etc. Frequently traded instruments: shares, bonds, currencies, commodities and derivatives. Companies use financial instruments to finance themselves and to manage their risk.
  4. 4. 4 What are Exchanges? Trading venues similar to exchanges existed during the Renaissance, the Middle Ages and even Ancient Rome. 1602 Around 1650 Establishment of the Antwerp Stock Exchange, the world’s oldest stock exchange. In 1531 the Antwerp Stock Exchange was also the first exchange to have a building specifically erected to house securities trading. The Dutch East India Company (VOC) issued the first shares on the Amsterdam Stock Exchange, becoming the first publicly traded company in the world. The secondary market in VOC shares provided what investors wanted from modern securities markets: liquidity and price formation. How did exchanges develop? 1460
  5. 5. 5 What are Exchanges? Soon, a lot of companies began issuing shares. While in some cases this euphoria ended with bubbles and crashes, shares were very successful overall. 19th century 1866 1870 – 1914 London Stock Exchange and New York Stock Exchange were established → Exchanges became a central part of the financial system and the modern economy. A telegraph line between New York and London reduced time delay between them from 5 days to 20 minutes. Rapid development of international financial flows. Prices on exchanges transmitted worldwide. How did exchanges develop?
  6. 6. 6 What are Exchanges? Most countries in the world have their own exchange. FESE represents 36 European exchanges (regulated markets). The 20th century 1980s Today Ushered in unprecedented technological advancements for exchanges, which are no longer centred on shares but also extend to bonds, derivatives, commodities, indices, currencies and many other financial instruments. Computerisation and electronification of trading. Machines reduce costs, increase efficiency and allow instantaneous transactions. Most trading on exchanges is carried out electronically, with little or no activity remaining on traditional trading floors. How did exchanges develop?
  7. 7. • Enables issuers and companies to raise new capital; • Brings companies and investors together; • Facilitates the process of investors subscribing in shares (and other securities*). • Provides a central market by matching supply and demand for listed instruments; • Helps price formation and price dissemination; • Creates trust and certainty. 7 THE PRIMARY MARKET OF AN EXCHANGE: THE SECONDARY MARKET OF AN EXCHANGE: 1. Exchanges enable the financing and risk management* of companies of all sizes via a wide range of instruments (equity, bonds and derivatives). What is the role of an exchange? 2. An exchange allows companies to raise funds by providing them with access to a pool of private and institutional investors. = Market for new issues of securities where companies issue shares directly to shareholders. = Market where previously issued shares are bought and sold. What are Exchanges? *Security: A general term for shares, bonds, options, subscription rights, warrants and other tradable investments that confer a right to income or ownership.
  8. 8. Who trades on exchanges? 8 What are Exchanges? INVESTORS COMPANIES Buy-side • Pension funds • Insurance companies • Hedge funds End Investors + INVEST CAPITAL RAISE CAPITAL Broker Broker
  9. 9. Exchanges are highly regulated entities subject to harmonised European rules that ensure they… 1. Provide highly efficient, reliable and democratic markets In order to ensure the integrity of markets run by exchanges, they are subject to the following EU rules: • The Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). • The Markets Abuse Regulation (MAR) and Markets Abuse Directive (MAD). • The Benchmarks Regulation (BMR). What are Exchanges?9 2. Ensure market integrity through fully transparent markets 3. Enable financing of the real economy • The European Market Infrastructure Regulation (EMIR). • The Short Selling Regulation. • The Prospectus Regulation. • The Transparency Regulation. How are exchanges regulated?
  10. 10. The Social Impact of Exchanges2
  11. 11. 11 To provide price formation To guarantee Transparency To act as a barometer of the economy To Offer diversified investment opportunities To promote economic growth and innovation What are the main functions of an exchange? What are Exchanges?
  12. 12. MATCHING SUPPLY AND DEMAND Exchanges provide a venue for an open and efficient interaction between buyers and sellers of securities*. PRICE FORMATION The interaction between buyers and sellers allows them to determine a common price. Price Formation What are Exchanges?12 *Security: A general term for shares, bonds, options, subscription rights, warrants and other tradable investments that confer a right to income or ownership.
  13. 13. MARKET TRANSPARENCY Exchanges provide exhaustive information on all instruments that can be traded on their markets. COMPANY TRANSPARENCY Securities admitted to trading on exchanges have to comply with EU disclosure requirements and accounting and auditing standards. What are Exchanges?13 When a public company is listed, it must 1. Produce and publish regular financial results reports (at least annually and half yearly); 2. Disclose information on new developments, whether positive or negative. Business operations (contracts, customers, suppliers); Financial conditions (turnover, liquidity, payments, funding etc.); Management (background and terms and conditions including pay etc.). Guarantee transparency
  14. 14. Act as a barometer of the economy A market index tracks a given market’s performance over time. Each market index has its own calculation methodology. The purpose of this methodology is to reflect whether or not the price of the securities in that market are collectively falling or rising. 14 What are Exchanges? EURO STOXX 50: An index for the Eurozone made up of 50 of the largest and most liquid shares. CAC 40: A share index consisting of the 40 largest companies on Euronext. DAX: A stock index consisting of 30 of the largest and most liquid German companies on Deutsche Börse. OMX Stockholm 30: An index which tracks the 30 most-traded stocks on NASDAQ. IBEX 35: An index which tracks the 35 most-traded stocks on BME. FTSE 100: A share index consisting of the 100 most actively traded companies on the London Stock Exchange. WELL-KNOWN MARKET INDICES
  15. 15. FINANCING OPPORTUNITIES For companies, exchanges: Enable the financing of companies* of all sizes via a wide range of instruments Raise funds by providing companies with access to a pool of private and institutional investors. Raise new capital by offering companies with alternatives to bank loans Help companies raise capital without taking on debit. INVESTMENT OPPORTUNITIES For investors, exchanges: Provide investors with access to a wide range of financial instruments with different characteristics. Provide wealth creation opportunities Provide stable and predicatable repayments when offering bonds Exchanges offer diversified investment opportunities What are Exchanges?15 DIVERSIFICATION *Exchanges also enable the financing of governments and banks.
  16. 16. Depending on the company’s size, needs and profile, it can list on one of the ‘main markets’ (Regulated Markets*) or one of the ‘alternative markets’ (Multilateral Trading Facilities*). This differentiation allows the markets to adapt their listing requirements to the size of companies. Both markets provide companies with a certain prestige as well as access to millions of investors. EXCHANGES ARE INTENT ON FACILITATING ACCESS TO CAPITAL FOR SMES Exchanges share their knowledge and expertise with companies that are new to listing. European exchanges host a variety of pre-IPO programmes that help and prepare companies to go public. Promote economic growth and innovation What are Exchanges?16 Types of public equity funding IPOMAIN MARKET IPOGROWTH MARKET
  17. 17. Empower tomorrow’s preservation The PARIS CLIMATE AGREEMENT IN 2015 has entrusted all major financial institutions with responsibilities vis-à-vis the financing of the Ecological Transition. The UN has initiated the Sustainable Stock Exchanges Initiative* in this regard To support this transition Exchanges: Develop and promote clean financing Democratise positive financing by expanding investor access to green product offering, such as: Cleantechs (investing in environmentally friendly companies) Green bonds Dedicated sustainable indices ETFs, etc. Boost transparency by influencing reporting standards. What are Exchanges? *The Sustainable Stock Exchanges Initiative is a peer-to-peer learning platform for exploring how exchanges, in collaboration with investors, regulators, and companies, can enhance corporate transparency – and ultimately performance – on environmental, social and corporate governance issues and encourage sustainable investment.
  18. 18. 18 FESE represents 36 Exchanges in equities, bonds, and derivatives 13 Multilateral Trading Facilities (MTFs) dedicated to listing and trading of SMEs From EU member states as well as Iceland, Norway and Switzerland 19 Full Members, 1 Affiliate Member and 1 Observer Member Federation of European Securities Exchanges (FESE) What are Exchanges?18 What are Exchanges? 36 Regulated Markets 13 MTFs dedicated to SMEs 1 Affiliate Member 1 Observer Member